Question

Why does the Net Present Value change depending on discount rate being used?

Answer #1

Net present value is the sum of present value of cash which is spent or received.

Each such future cash inflow and outflow is discounted at a given interest rate to measure or sum the present time value of money.

The equation for calculating NPV is FV/(1+i)^n

The discount rate for calculating the NPV is a key input and it is the interest rate which is used to discount the future cash flows to yield their present value and a higher discount rate will lower the value of NPV so,as the discount rate changes,the value of NPV changes.

what does present value really tell us ? if the discount rate is
higher why would the pv be lower ?

Why isn’t accounting net income used in the net present value
and internal rate of return methods of making capital budgeting
decisions?

The
i thermal rate of return is:
The discount rate that makes the net present value of a
project equal to the initial cash outlay.
Equivalent to the discount rate that makes the net present
value equal to one.
Tedious to compute without the use of either a Financial
calculator or a computer.
Highly dependent upon the current interest rates offered in
the marketplace.
A better methodology than net present value when dealing with
unconventional cash flows.

The internal rate of return is the discount rate at which the
net present value is Select one:
a. positive.
b. There is no relationship between these two concepts.
c. equal to zero.
d. negative.

The net present value of a project is $260000 at the discount
rate of 14.0 percent. Which of the following could be the IRR of
this project?
a)11.6
b)12.29
c)11.6
d)11.96
e)16.6

does depreciation of machinery & salvage value be used in
calculating net present value profit and loss and cash flow
statement

if a rights offer is used as a means of funding a positive net
present value project, then shareholders should expect the price of
their share to:
-remain constant as the value of the project will be offset by the
issuance of the new shares
-decrease due to the additional shares being offered
-change but the directions of that change cannot be predicted
-change in direct relation to the change in the book value per
share
-increase due to the...

What discount rate is most appropriate for net present value
calculations of large-scale projects? Of small projects? Of the
quantity of inventories to hold?

Why is the rate used to discount FCFF different from the rate
used to discount FCFE?

Net Present Value
Calculation
Initial Investment
Discount
Rate
Net Benefit Year 1
Net Benefit
Year 2
New Benefit
Year 3
Present
Value
Is this a worthwhile
investment?
100,000
.06
50,000
50,000
50,000
100,000
.12
50,000
50,000
50,000
100.000
.24
50,000
50,000
50,000
200,000
.06
80,000
80,000
80,000
200,000
.36
100,000
100,000
100,000
500,000
.36
200,000
350,000
500,000
500,000
.36
500,00
350,000
200,000

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